Financing

Frustrated fast-food customers are apparently heading to Walmart

The retail giant suggested its value is pulling customers away from restaurants, where menu prices continue to increase.
walmart
Consumers are apparently opting for Walmart groceries rather than fast food. | Photo: Shutterstock.

The big beneficiary of consumer frustration over prices is, apparently, Walmart.

The retail giant on Thursday reported earnings that topped Wall Street estimates, notably same-store sales that increased 3.8%.

But it’s not that the company bested estimates that should worry restaurants, but how it bested estimates: Consumers looking for value are apparently shopping at the chain’s stores and its website more often. And many of them are doing so rather than visiting a fast-food restaurant.

“If you’re trying to feed a family of four or five or six and prices in restaurants have gone up and in Walmart it’s beginning to come down,” CEO John Furner told analysts on Thursday, according to a transcript on the financial services site AlphaSense.

CFO John David Rainey echoed those sentiments in an interview with CNBC, noting that eating out is 4.3 times more expensive than eating at home. “And it is benefiting our business,” he said.

Restaurants could face a challenging few months as grocers lower their prices. Retail food prices declined 0.2% in the first quarter. At fast-food restaurants they increased 0.4%, the second straight month such prices accelerated after showing signs of slowing earlier in the year.

Restaurant sales slowed noticeably in the back half of 2023, and earlier this year McDonald’s CEO Chris Kempczinski sounded the alarm on low-income consumers shifting their spending to grocery, particularly those making less than $45,000 per year.

“That consumer is pressured,” he said in February. “From an industry standpoint, we actually saw that cohort decrease in the most recent quarter, as eating at home has become much more affordable.”

That concern has intensified so far this year as a parade of fast-food chains have reported weak or declining same-store sales. And it’s led to a shift in strategy on the part of many of them.

McDonald’s, for instance, is set to start offering a $5 value meal anchored by its McChicken or McDouble next month. And Jack in the Box, which reported declining same-store sales itself last quarter, is preparing some value offers of its own.

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